Financial Management and Analysis

FINANCIAL
MANAGEMENT AND
ANALYSIS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Critically analysis of changes in financial performance and health during last five years. ....3
2. Explanation of problem of analysis.......................................................................................19
3. Recommendation to above company in accordance of analysis............................................20
CONCLUSION .............................................................................................................................20
REFERENCES..............................................................................................................................22

INTRODUCTION
The financial management may be understood a process of planning, managing, guiding
and keeping control over financial activities (Delen, Kuzey and Uyar, 2013). The objective of
this management is to make full usage of available financial resources so that objectives can be
achieved. Basically, it is responsibility of finance managers to apply different techniques in order
to do better financial management. In the project report two companies have been selected which
are listed on London stock exchange. These companies are British American Tobacco plc. This
company manufactures cigarette and tobacco and it is headquartered in London, England. It is
world's 2nd largest producer of cigarette. The project report covers information about financial
health of above chosen company in regards to liquidity, profitability etc. As well as further part
of report enables readers about suggestion to company to overcome from weaker areas.
MAIN BODY
1. Critically analysis of variations in financial condition and health during previous five years.
Financial performance analysis- This is essential for companies to make proper analysis of
financial aspects so that internal and external stakeholders can become aware about company's
financial health. In order to do analysis of monetary condition of corporations, there are different
range of aspects that must be considered. In regards to British American Tobacco plc, herein
underneath some aspects are covered below for five years such as:
1. Liquidity- This is crucial for business entities to assess liquidity condition to know efficiency
of making payment of short term expenditures (Sohn and Kim, 2013). To analyse liquidity
condition of corporations, there are mainly two types of ratios that are calculated and interpreted.
Below these two ratios are mentioned related to above British American Tobacco plc: Current ratio- Current asset / current liability
All data in
GBP million
except current
ratio
2014 2015 2016 2017 2018

Current asset 9132 9814 12359 13966 12655
Current
liability
8769 9006 11856 15544 16329
Calculation 9132/8769 9814/9006 12359/11856 13966/15544 12655/16329
Current ratio 1.04 times 1.09 times 1.04 times 0.9 times 0.77 times
2014 2015 2016 2017 2018
0
0.2
0.4
0.6
0.8
1
1.2
1.04 1.09 1.04
0.9
0.77
Current ratio
Analysis- The current ratio computes efficiency of a company in order to make short term
payments. This becomes essential for companies to keep their current ratio in ideal form which is
2:1 times. In accordance of above presented line chart, this can be assessed that above
corporations’ liquidity position is not so good as their current ratio is decreasing in recent years.
Such as in year 2014, the current ratio was of 1.04 times that raised in next year till 1.09 times.
While in year 2016, it decreased and became of 1.04 times as well as in next years also it
reduced and became of 0.77 times in year 2018.
 Quick ratio (Acid test ratio) = Quick asset / current liability
All data in
GBP million
except quick
2014 2015 2016 2017 2018

ratio
Quick assets 4999 5567 6566 8102 6626
Current
liabilities
8769 9006 11856 15544 16329
Calculation 4999/8769 5567/9006 6566/11856 8102/15544 6626/16329
Quick ratio 0.57 times 0.62 times 0.55 times 0.52 times 0.41 times
2014 2015 2016 2017 2018
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.57
0.62
0.55 0.52
0.41
quick ratio
Analysis- The quick ratio is a sort of ratio which is computed by corporations to analyse value of
quick assets to make payment of current liability. Ideal quick ratio is 1.5:1 times (Erdogan,
2013). The above presented line chart presents quick ratio of above company that is not in ideal
form. In starting year 2014, this was of 0.57 time which raised in year 2015 and became of 0.62
time. Except this year, in rest of years their quick ratio decreased in a significant manner in all
next three years. In year 2018, the ratio was of 0.41 time that was 0.11 times lower in compare to
year 2017.
2. Profitability- It is common goal of all business entities to gain higher profit so that invested
cost can be covered. To evaluate profitability condition of corporations, there are rangeof ratios

that are assessed by companies (Rist and Pizzica, 2014). Herein, underneath some ratios of
chosen company are computed that are as follows:
 Operating profit ratio- Operating profit / net sale x 100
All data in
GBP million
except
operating
profit ratio
2014 2015 2016 2017 2018
Operating
profit
4653 4591 4653 6470 9437
Net sales 13971 13104 14751 20292 24492
Calculation 4653/13971*1
00
4591/13104*1
00
4653/14751*1
00
6470/20292*1
00
9437/24492*1
00
Operating
profit ratio
33.30% 35.04% 31.54% 31.88% 38.53%
2014 2015 2016 2017 2018
0
5
10
15
20
25
30
35
40
45
33.3 35.04
31.54 31.88
38.53
Operating profit margin (in
terms of %)